Framework Arrangements

Framework Arrangements
CIPS is expressing beliefs on framework arrangements as they are a
fundamental part of managing the supply of goods and services, yet are often
a source of confusion
organisation so it is important to first ensure that the terms
and conditions are correctly drafted so that the supplier is
tied in to what has been agreed. Consideration is of course
Framework arrangements are becoming more popular as
an essential element of the contract; without consideration,
they represent a 'smarter' way of purchasing than placing
'one-off' orders for recurrent contracts for works or supplies; either party may withdraw at any time. The consideration
by, for example, optimising volume purchasing discounts and may be a purely nominal sum which will, however, in the
event of a dispute, normally be interpreted by the courts as
minimising repetitive purchasing tasks.
confirmation that the parties are happy to be bound in the
legal sense (see section below headed 'Consideration').
A key aim of a framework arrangement should be to
establish a pricing structure; however this does not mean that
actual prices should be fixed but rather that there should be a Other expressions associated with framework contracts
include 'term contracts' which are generally framework
mechanism that will be applied to pricing particular
contracts, but may also be encountered in other buyer/
requirements during the period of the framework. It should
supplier situations and are arrangements put in place for a
also be possible to establish the scope and types of goods/
fixed period of time. These are sometimes referred to as
services that will need to be called-off.
'period contracts'. Where a contract of this kind is put in
place without a specified end date it is sometimes called a
CIPS Positions on Practice
'running contract' or 'perpetual contract'.
Introduction
The key positions in this paper are summarised below.
• CIPS emphasises the importance of buyers making a
distinction between framework agreements and framework
contracts.
• Buyers need to be aware of the various expressions
associated with framework arrangements, including 'trading
agreements' and 'standing offers'.
• CIPS believes that since, by definition, framework
arrangements extend over a period of time, particular care
has to be given to setting prices (consideration) when at the
contract stage.
• CIPS would emphasise that lengths of call-offs are not
governed solely by EC rules - they are also of significance
for medium- and long-term consultancy contracts, for
example.
• CIPS believes that the purchasing professional has a
responsibility to select the type of framework best suited to
his organisation's needs.
• CIPS considers that when putting framework arrangements
in place purchasing professionals should communicate the
implications to colleagues both within and external to the
organisation.
• CIPS believes that buyers need to pay particular attention
to the supplier base (geographical distribution, for example)
when putting framework arrangements in place.
Framework Agreement
A framework agreement is the same arrangement without the
up-front consideration - instead, each time a buyer uses the
agreement a separate contract is formed by the consideration
paid for the order in question. Some organisations call
framework agreements 'trading agreements' - others might
call them 'standing offers'. 'Blanket orders' are a type of
framework agreement (they can also be a commitment of any
of the purchasing participants to make use of the
arrangement but under the terms of which they are entitled
to obtain the specified goods or services from the
participating suppliers should they wish to do so). In blanket
order situations an order number is given to a supplier which
the supplier uses to invoice - and buyers simply call off their
requirements against it. Many other terms are used for
framework agreements, one example being 'umbrella
agreements'. The term 'frames' is also used but is rather
unfortunate in that it has negative connotations!
There are broadly two types of framework arrangements framework contracts and framework agreements.
Therefore, difference between framework contracts and
framework agreements may be summarised by saying that the former is an arrangement between two parties which
commits one to buying at least a certain volume of particular
goods or services from the other over a specified period; the
latter is an agreement between two parties for the supply of
an unspecified amount of a product over a specified period.
In this document, for points that apply equally to a
framework contract or framework agreement, the generic
term 'framework arrangement' is used to include both. A
'memorandum of understanding' is also an expression used
in association with, or as a type of, framework arrangement.
Framework Contract
Consideration
A framework contract has a consideration of a monetary sum
paid up front by the buying organisation to the supplier. This
payment is made in order to create a contract on the terms
and conditions offered by the supplier to the buying
Consideration is almost always a sum of money; however,
since consideration may be concisely defined in a contractual
context as 'something of value', goods or services can also
constitute consideration.
Definitions
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Framework Arrangements
Opinions differ as to whether or not nominal amounts such
as £1 represents consideration under a framework
arrangement; in the civil service and MOD, for example,
such a sum is deemed to be acceptable consideration.
An opposing view is that if the parties commit themselves
then there is a contract - paying £1 will not make any
difference.
In many cases buyers will not be able to accurately forecast
their requirements; however this does not obviate the need
for some form of contractual commitment. Generally the
reality is that buyers are disinclined to commit themselves
when, as is often the case, future needs are unclear; this is a
particular issue when larger value items are involved. The
attractiveness of the £1 consideration is that it should ensure
the supplier keeps his offer open for acceptance without the
buyer being committed to a specific level of expenditure.
On the other hand it may be difficult to imagine that a
supplier would accept a commitment to satisfy any and every
order in return for no client commitment to
place any orders at all or at least would require much more
than £1 for doing so.
An alternative approach is the 'total support concept' this
functions rather like an extended consumer warranty,
whereby, for a payment of £X per month a supplier will
undertake to supply all the spares and repairs needed.
place.
The length of call-offs under a framework arrangement is
not limited by the EC Procurement Directives (see next
heading). For example, call-offs for consultancy services
might be for three, six or 12 months or even longer.
However, individual call-offs should not be affected just to
circumvent EC rules. Thus it would be difficult to justify a
12-month call off right near the end of the term of the
framework in cases where the normal pattern hitherto has
been for one-month call-offs.
Options for call-off arrangements will vary according to
individual circumstances and in particular the number of
suppliers involved.
Framework Agreements and the EC
Procurement Rules
In the EU, buyers in the public and utilities sectors must
comply with the EC Procurement Directives. The Directives
do not mention framework arrangements of any kind yet it is
common practice in the UK for both public and utilities
sector buyers to put such arrangements in place. Indeed, well
over 80% of public sector orders are put through framework
arrangements.
(Note: The new consolidated Public Procurement Directive
(currently - June 2003 - in its final stages in Brussels) does
Terms and Conditions
for the first time explicitly address the issue of framework
agreements. This gives important clarification to the way
Some organisations set up framework arrangements by
bodies subject to the EC rules must let and operate
sending stringent terms and conditions to suppliers as part
framework agreements and introduces certain new
of the invitation to tender documentation, and in order to be requirements including the restriction of the length of a
awarded the framework arrangement they have to agree to
framework agreement to four years except in exceptional
the terms and conditions proposed. On other occasions
circumstances. Comprehensive guidance is available from
'boiler plate' conditions of contract are sent to suppliers
the OGC website (www.ogc.gov.uk).
which are modified under the contract that comes into being
later, for example, when a call-off order is made.
The Public Sector
The terms and conditions agreed at today's date will apply
even if delivery and hence payment is a year down the line;
the original framework document needs to reflect/
accommodate this. The framework is the main contract, with
each individual order constituting a separate mini-contract.
Within the public sector, there are two types of framework
arrangements that are commonly used. The first is where an
arrangement is put in place with one or more suppliers for
the supply of a range of supplies or services in which the
prices (or more accurately, a pricing formula) and terms and
conditions are all agreed for the duration of the period of the
The contract needs some form of disclaimer to the effect
arrangement. The second type is where prices are
that any estimates of volume of demand are non-binding,
determined by a 'mini-competition' between the suppliers
and even that the buyer is not obliged to place any orders at that have been awarded the framework contract; they can
all. Also that the buyer has the right to place orders for the
also be used to refine other value for money criteria
same goods and services elsewhere during the lifetime of the However, the award criteria must remain consistent with
agreement.
those employed at the time the arrangements were put in
place. Both types of arrangement can be let with a single
Framework arrangements can also be used simply to presource supplier but the 'mini-competition' stage in the
agree one or two terms or conditions that the parties agree
second type of arrangement involves the supplier firming up
will provide the basis of a trading arrangement if suitable
the prices for the requirement in question.
opportunities arise in the future. Here it is important that all
the buyers who might be dealing with that supplier are made Alternatively, it can be argued that rather than two different
aware of the arrangement so as to avoid unnecessary debate. types of framework arrangement there are instead two
Thus a buyer might confirm acceptability of the supplier's
different ways of calling off from any given framework
buyers standard terms so they do not have to be rearrangement. Whether or not a mini-competition is held
negotiated every time.
depends on the particular requirement and whether the
Call-Offs
When awarding call-offs (i.e. individual contracts) under
framework arrangements, contracting authorities in the
public and utilities sectors do not need to go through the
procedural steps again as long as the rules for setting up the
framework agreement were correctly observed in the first
terms are precise enough to identify the best supplier for
that particular requirement.
The Utilities Sector
The separate Utilities Directive provides for framework
agreements, defined as “an agreement with suppliers, the
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Framework Arrangements
purpose of which is to establish the terms governing
contracts to be awarded during a given period, particularly in
terms of price and quantity” (this could be used as a generic
definition for framework agreements). For this type of
agreement there is no particular problem under EC rules as it
can be treated in the same way as any other contract.
However, the Commission is concerned that there should be
no potential for negotiation or varying the contract when
calling off a requirement against a framework - finalising the
terms of any contract under a framework should be a
'mechanistic' procedure, not involving re-negotiation of the
terms already established.
The UK has always taken the view that the only sensible
approach to such arrangements is to treat them as if they are
contracts in their own right for the purposes of the
application of EC rules. As such the practice has been to
advertise the framework itself in OJEU and follow those
rules for the selection and award of the framework.
Framework arrangements are most often used for high
volume/low value orders but are also useful for other
segments of spend such as consultancy arrangements. They
are particularly useful in construction projects as they enable
detailed specifications to be worked up at an appropriate
time within the project. They are also a useful tool in the bid
support arena to generically underpin a future contract that
will not be agreed unless the specific bid is won. The
Portfolio Matrix can be used to illustrate the different ways
framework arrangements can be used, for example, in the
'Leverage segment' it is good practice to aggregate spend but
limit the duration of the arrangement and/or have other
mechanisms built in to maintain competition. In the 'critical
segment' a more detailed term contract may be appropriate'
to ensure security of supply. In the 'strategic segment' a
framework may be more akin to a partnering agreement and
seek to try to extract extra added value services from the
supplier relative to the buying organisation's competitors.
Drawing up Framework Arrangements
Variations in Framework Arrangements,
and in Their Uses
The following examples illustrate some of the variations in
framework arrangements, and the purposes they can serve.
Setting up framework agreements and framework contracts
should not be seen as an onerous process.
They should usually include:
• some words that describe the purpose and scope of the
It is the role of the purchasing and supply management
arrangement
professional to determine the type of framework
arrangement to support the organisation's needs according to • clarity on whether it is in fact a contract or agreement (i.e.
circumstances. For example, if a supply requirement is from
is there consideration)
a supply chain with risks associated with it then it is probably
• terms and conditions that apply to each call-off (an
best to firm up the arrangement by making it into a contract.
identified arbiter is also useful)
• a pricing mechanism - may not be fixed prices along with
Some organisations provide an estimated quantity without
discount arrangements
any commitment to meet that quantity when setting up
framework arrangements, with the aim of achieving better
• specifications, standards, samples as appropriate to define
value for money; this will be improved where a quantity is
the requirements
actually committed. When details of quantities are provided
• a call-off mechanism/procedure
these should not be exaggerated, as this will undermine the
• period - duration of arrangement
credibility of the buying organisation in the supply market.
• any limitations on the use of the arrangement
Equally, if a framework arrangement is put in place that is
not used, then this too will damage the buying organisation's • estimated volumes as appropriate.
credibility.
A deed is another legal device that can be used to tie the
supplier in to the terms and conditions offered, as it is a
means of creating a contract without consideration.
This, however, can be an expensive process involving
lawyers and, as such, it is not recommended by CIPS.
Suppliers who are awarded framework arrangements are
sometimes termed 'approved suppliers' or 'preferred
suppliers' as they have been subject to a supplier appraisal
process and therefore considered to offer value for money
from a relatively secure source. The expression 'qualified list'
of suppliers is also used when referring to suppliers who
have been awarded framework arrangements.
It is arguable that a distinction may be made between
approved and preferred suppliers. One pair of definitions
might be:
• an approved supplier is one on a list of similar suppliers
who has been pre-qualified and is eligible to tender or
quote for particular categories of requirement
• a preferred supplier (a dangerously nebulous term) is one
who has some kind of formal agreement with the
organisation.
One way of avoiding possible confusion is to simply use the
term 'contracted supplier'.
Advantages of Framework Arrangements
Framework arrangements can provide many benefits to the
buying organisation including:
• flexibility -to determine the specific requirement at the calloff order stage
• saving time at a critical stage in a project, as the buyer can
firm up the requirement at the appropriate time and simply
call-off rather than having to go through a competitive
exercise that could cause unnecessary delays to a project
• leverage/economies of scale through aggregation framework agreements and framework contracts can often
cover hundreds of items with the prices and terms and
conditions agreed
• avoids duplication - one buyer goes out to the marketplace
on behalf of all the other buyers in the organisation
• avoids re-work -as framework agreements/contracts can be
used to remove the need for requisitions and approval
processes (as the risk has already been managed) - however
some organisations prefer to use the full acquisition
procedure, even for call-off orders
• a suitable method of conducting business in an organisation
that has devolved budgets - by putting arrangements in
place and then empowering end-users to order from them
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Framework Arrangements
• an appropriate method for use by consortia that set up
arrangements on behalf of a number of organisations as it
provides leverage through economies of scale whilst
maintaining the independence of the buying organisations
• enabling eProcurement by putting the suppliers' offerings
under the framework arrangement on the eProcurement
system for buyers to use
• supporting purchasing cards as buyers can call off from the
framework arrangements using pCards for ordering and
payment
• can be used as a method of variety control/standardisation
as appropriate by offering buyers only the choice of
products within a category of spend which are provided for
under the framework arrangements in place -alternatively
the converse can be enabled through frameworks offering
buyers a wider choice than they would have the time to
arrange if sourcing independently.
Introducing Framework Arrangements
Practical Considerations
It is important that the purchasing and supply management
professionals who put a framework agreement/contract in
place for use by other buyers (either colleagues, or those in
other organisations) ensure they communicate the fact that
this has been put in place and provide these individuals with
easy access to the arrangements. This might be done via an
intranet or part of an eProcurement solution with suppliers'
offerings under the framework arrangements being readily
accessible and usable. Suppliers are also helpful in promoting
the framework arrangement to buyers and end-users by, for
example, putting on lunchtime presentations explaining the
new arrangement and taking questions.
Another consideration is ensuring that buyers and end-users
understand the circumstances in which they should use the
framework arrangements. This must be articulated as part of
the policies, procedures and standing orders of an
organisation that empower specified individuals to carry out
certain activities within an overall policy framework. An
example might be for an end-user to commit a £100k order
to a supplier that happens to be a preferred supplier under a
framework arrangement for a given set of requirements
whereas it would have been preferable to put the order out to
competition.
be made to the CIPS Knowledge Summary document on
Contract Management.)
For this purpose, when initiating or re-letting such
arrangements, there must be clear definition of the
management information and analysis which will be required,
e.g. regarding frequency/value/types of goods and services
called off, and delivery performance; and which party will
capture it. Often, the supplier is in the best position to do
this. As well as receiving such reports in hard copy, the
customer will benefit from receiving them in digital form e.g.
Excel files, enabling them, if necessary, to analyse the data in
additional ways. Purchasing and supply management
professionals must also ensure that they manage a market so
that the competition does not disappear as a result of all the
business being placed with just one or two suppliers. This is
particularly important when setting up framework
arrangements on behalf of a large organisation, or on behalf
of a consortium.
When considering how many suppliers to award a framework
arrangement to for a given requirement, the issue of
geographical spread needs to be considered. For instance, one
supplier might be best placed to service sites in the North
East of England and not be as capable of servicing sites in
Devon or Cornwall. One method is to enable a supplier to
subcontract work to another local supplier to cover the area
that is difficult for the main contractor to service.
In some public sector organisations, multiple framework
arrangements are put in place at national, regional and local
levels. Care needs to be taken to communicate to end-users
and buyers which arrangement offers best value for money to
the organisation especially if one supplier is servicing two
arrangements - at a national and local level, for example.
All frameworks when tendered should clearly show that it is
indeed a framework arrangement; the duration of such
arrangement; the estimated maximum number of suppliers;
estimated total value; and the award criteria, whether simply
price, or MEAT (Most Economically Advantageous Tender).
Conclusion
This CIPS Position has drawn attention to the expression
'framework arrangement' as a convenient generic term
embracing 'framework agreement' and 'framework contract'
A further related point is that end-users and buyers using the although given the visual similarity of the words
framework arrangements must be aware of the importance of 'arrangements' and 'agreements' the choice of word is perhaps
confidentiality - and not for example, communicate prices to not ideal.
other suppliers in the marketplace. It is also good practice to
This Position has clearly shown that while framework
involve a representation from the user community when
setting up the framework arrangement so that their needs are agreements are an essential feature of the landscape for those
working in the public sector and with the EC
included in the decision-making process and hence they are
Public Procurement Directives, and are moreover frequently
more likely to use and support the arrangement.
mentioned in the literature, they have not until now featured
in the Public Procurement Directives themselves (a situation
It is important to note also that a framework arrangement
which, however, is likely to change when the new
should be tailored for the type of requirement being
contemplated e.g. that relating to short-notice plant hire will consolidated Public Procurement Directive is published).
be very different to those applicable to major project work.
In its review of framework contracts this Position has drawn
attention to the vital role of consideration in contracts.
Monitoring Framework Arrangements
Referring to the discussion of nominal consideration, CIPS
takes the view that suggesting a sum of £1 might cause
All arrangements with suppliers need to be managed once
resentment in some suppliers. Setting firm prices at the
they have been put in place, by seeking end-users' and buyers'
contract stage also has its dangers; a much better approach,
feedback, as well as through feedback from the suppliers.
suggested towards the bottom of the first page, is to make
Performance measurement is important and should be
use of a mechanism that can be applied to pricing particular
aligned to the award criteria and the scope and purpose of the
requirements during the period of the framework.
arrangement. Reviews should be undertaken regularly within
a framework of continuous improvement. (Reference should
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